from the truth-in-emailing dept

Ever wondered why brand name drugs are so much more expensive than generics? Well, so did one Reddit user, who asked what magical qualities made a branded pill worth $500 when the generic was available for $10, and got back a response he wasn't expecting (found via Consumerist), as the rep accidentally emailed him the question that the rep meant to email a superior:

In other words, there's simply no good reason. Of course, the monopoly rents afforded to the branded drug maker through patents probably helps. Combine that with the amount of money dumped into highly questionable and dangerous advertising, and you get a bit closer to the answer...

looking for a new job

hMM,

I could say something here, but it wont help.

I could suggest the justification they will Probably say..
But, I cant justify THEIR ability to buy a new car each month with CASH.(not a cheap car either) And still be able to pay ALL their bills, including the Taxes on home property worth Millions.

I don't think sending that email was a mistake. I don't doubt that people that work in the drug industry also know that the system is absurd, and all of them can't be evil. Just the greedy few at the top.

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> Just the greedy few at the top.

You're right, corporations are run by cackling maniacs who sit in a hot tub of diamonds and throw stacks of bills on the fire.

What the hell are you talking about? Corporations have shareholders and boards who DEMAND dividends. There are no "greedy few" at the top. There are the greedy many, lots of whom are everyday people who own mutual funds with Pharmaceutical companies in them.

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By "greedy few" think about like this.

In a pure numerical sense how many greedy shareholder and board members are there compared to the millions of regular folks that get left having to pay up for drugs have been artificially marked up. Unless you really think there are more of them than more of us?

It's just some guy. He's not speaking for the whole of big pharma. His company pays for drug research. Building a marketable product in this industry, where even sure-things are crapshoot, is massively expensive. It's much easier to skip that expense and copy the formula.

You can complain the profit margin is too high, or that industry focuses on products that enable a poor lifestyle rather than those to treat niche deficiencies that are the luck of the genetic draw, or that advertising corrupts the market. You can't, however, seriously argue that there's no justification for a markup of any sort.

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Considering that they spend more on advertising then they do on research, I find your argument to be entirely specious.

In addition, any drug that is already in generic form is out of the exclusive term of the patent, according to the pharma companies own math they have made back all their R&D by then anyway as that is what the exclusive term is supposed to cover.
No, that is nothing but bald faced profit taking and I am personally very glad that the generic drug industry exists.

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If you say big pharma spends more on advertising than research, cite sources. I've been in the industry for eight years, and Sales and Marketing do not have multimillion dollar clusters for modeling drug interactions, nor test labs with millions in equipment. They have laptops and Powerpoint and color printers, easily a quarter of the staff of R&D, and a commodity-like mission: sell "X".

Contrast that with the human capital expense of any talented scientist, and I don't see, even back-of-the-envelope, how R&D is less than S&M. But hey, cite source.

And one more thing: ingredient costs are not the same as total costs, which includes manufacturing and distribution. At the lowest margins, a generic bottle of ibuprofen is really at its lowest possible cost per pill. That's what should be compared to Advil, to prescription 600mg ibuprofen (which is 3 generic 200mg pills in one).

"Pharmaceutical company spending on marketing far exceeds that spent on research.[2][3] In Canada, $1.7 billion was spent in 2004 to market drugs to physicians; in the United States, $21 billion was spent in 2002.[4] In 2005 money spent on pharmaceutical marketing in the US was estimated at $29.9 billion with one estimate as high as $57 billion.[3] When the US number are broken down 56% was free samples, 25% was detailing of physicians, 12.5% was direct to consumer advertising, 4% on hospital detailing, and 2% on journal ads.[4]"

Sources cited in the article include the New England Journal of Medicine, an Obstet Gynecol Survey, JAMA, and pharmexec.com.

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I suppose you could argue that sending out all of the free samples is research into the side effects since they do not tend to realize the harmful effects of these drugs until they start making people ill.

I'm still amazed at the number of drugs that have side effects like stomach pain, ulcers, headache, vomiting, skin irritation, loss of vision, and death are being used to treat things like hair loss. Really? Are we risking death to have a bit more hair on our heads? And how does the drug know you want the hair on your head?

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And it want be a U.S. patent. I wonder what will happen when all the medical stuff is being done outside the U.S., the U.S. is creating the ideal conditions for sales not production or discovery so people will discover things elsewhere and sell it here in the U.S. and charge ridiculous amounts of money.

In the future I can see the use "creative industry" being decimated by competition coming from the outside just like the manufacturing industry was destroyed by others.

They are doing the same things that led to that and people don't care apparently, well what do I know anyways.

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"# The industry fought, and won, a nine-year legal battle to keep congressional investigators from the General Accounting Office from seeing the industry’s complete R&D records. (See Section IV) Congress can subpoena the records but has failed to do so. That might owe to the fact that in 1999-2000 the drug industry spent $262 million on federal lobbying, campaign contributions and ads for candidates thinly disguised as "issue" ads. (See accompanying report, "The Other Drug War: Big Pharma’s 625 Washington Lobbyists") "

It's really easy, Chris!

However, even if you count ONLY the money reported by 'big pharma' that they spend on advertising, that's still bigger than their research budget. And they don't want to admit they're spending advertising dollars, so they will lie about what counts as advertising. The famous example is the european retreats.

If you need more sources, I used google and got that as the first hit, among a page of similar results.

To address your misunderstanding in particular:
The cost of a marketing department is rarely what goes on in the buildings. I agree, they cost very, very little. Even for all the fanciest graphics equipment those guys could ever want, that'd merely be millions per year.

It's the costs outside of the building that really, really build up.
Consider, say, the rent on billboards. If you have 2 in every major american city, (not a stretch by anyones imagination), that's already a multi-million dollar project. Do the back-of-envelope; 1000 billboards * $10 a day * 365 days = 3.6 million; you and I both know that big pharma has a lot more billboards than that. And a lot of them are a lot more expensive than $10 a day.

If you have commercials running every 10 minutes on selected major TV channels, that's up in the tens of millions, the high tens of millions. Again, production costs pale in comparison to the cost of advertising space.

If you invite thousands of doctors every week to a retreat somewhere in europe where you convince them that your new drug is really the best for their patients; well, each of those retreats cost millions of dollars; Tens of millions if they swap the location every meeting. Which has shown to be more effective; Enough so to make it worth spending tens of millions every week.

They usually hire about 30 speakers at $10,000 each to speak at these events. I'm pretty sure this figure was true back in 2004; One of my close friends, who is now the local MS Society rep, used to be such a shill for not even a really big pharma who supplied his MS drugs. That's where I'm getting those 2 numbers from. Mind you, his company could only afford to do it 15 times a year.
If it's a weekend, not just a day trip, it ends up being about 50 speakers. They speak for about an hour each, usually 3 speakers in different places at the same time.
That alone is half a million. Ow.

That's before we consider the cost of flying 2000 doctors upto Spain in the morning, and back at night, on their own special flight. If it's the weekend, then the cost of a 5-star hotel for 2000 doctors, each with their own room.
Mind you, they save a lot in bulk purchasing there. If we assume they spend $400 each on the doctors, which is a conservative estimate, that's still $800,000.
I have no idea what the travel expenses would be, though.

So yeah, basically, some of them spend millions every week on this sort of thing. So, shall we say mid-hundreds of millions on a yearly basis? This is also one of those things they vehemently disagree with being called advertising, (despite the fact that it's run by their marketing depts.), because it is, of course, merely educational.

Starting to get the picture Chris? There's a heck of lot more that they do than this, too.
Any other questions?

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I've been in the industry for eight years, and Sales and Marketing do not have multimillion dollar clusters for modeling drug interactions, nor test labs with millions in equipment. They have laptops and Powerpoint and color printers, easily a quarter of the staff of R&D, and a commodity-like mission: sell "X".

all those prime time TV commercials, billboards, radio ads, and full page ads in magazines are free?

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Seems to me that you're confusing spending a ton of money on advertising with spending a ton of money in refurbishing the Marketing offices, as opposed to... I don't know, HIRING advertising companies and buying ad-space and paying them tons of money?

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Lobbying?

The reason for the pricing difference is that they can charge what they feel like charging.

The US doesn't have a national healthcare system, so it doesn't have to pick up the tab on drugs. If taxes were paying for the drugs, you can be sure that there would be an immediate change in the law.

Big Pharma uses the excuse that if the US were to regulate prices that it would severely reduce R&D. By that reasoning, it would appear that most pharma R&D is being subsidized by the US. Its completely ridiculous, but it sounds good for politicians to say after they've been bribed (lobbied).

Pharma without patents

The fact that he does not know the reason does not mean that there is no reason.

I would expect that his answer would be something like "expensive research that needs to be paid, the research that generic companies just don't do". I know that you have provided arguments why you think patents are not needed for that - here is why those are not (yet) convincing for me:

I know you say that there are other things that allow you to profit from your research - you get ahead of competing companies and you know how things work, it is not easy to copy that. And there are other things that the others cannot copy - brand etc. I totally believe this would be enough in software world, even in hardware industry. But pharma industry... where I know even smaller companies investing a million Euro a day(!) into their research... I just don't see how this kind of industry could work without (good - not that obvious crap they so often patent today) patents.

I have noticed the only argument against that - you claim that there ale/were countries like Italy where pharma business was thriving without patents. I don't think that proves anything. It's a special situation - no-patents island in yes-patents world - and that island is _not_ isolated. It seems logical enough - when there is a big enough area where patent protection works, there is a big enough incentive to invest into the research - even with a small island that can parasitize on it. And of course Italy was thriving - they did not have to pay expenses of the patent system but they could use benefits: patents in the rest of the world just financed research for them. But it would be totally different situation if patents were abandoned everywhere.

The whole 'ecosystem' would only depend on non-patent incentives. We have not tested this situation in real world so we cannot know whether non-patent incentives would be big enough to make sure that enormous money needed to do medical research would be worth spending. Or can we?

Re: Pharma without patents

I think you might have an assumption in your complaint about the Italy example. Correct me if I am wrong, Your 'patent world' verse 'nonpatent island' implies that the only reason Italy worked without patents, is because of all the patents around it.

That would mean that all the new work and research came from everywhere else and Italy's only role was a leach. However,I think the arguments usually present Italy not as a leach, but as a contributor. But if patents are the incentive, then there would be no incentive to contribute while on the island and all contributions would be in the patent world. Hopefully that provides another view of the situation for you to dwell on.

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>>>But if patents are the incentive, then there would be no incentive to contribute...

I say patents are incentive but I never said patents are the only incentive.

Let me illustrate this on a model: lets imagine that most of the world respects patents - all countries except Italy. World's companies have no other option then to finance their own research because they cannot use anything invented by others (well... others except for one country - Italy). Italy does not respect patents - they can use anything invented by the rest of the world.

But Italy still has other incentives to do research (I've written about other incentives - brand, getting ahead of competitors etc). But unlike the others, Italy does not profit only from their own research - they can profit from their own research AND also the research done by the whole rest of the world. And we know that when you can use innovative things done by others freely it can help you to innovate further. Therefore Italy can be seen as winner - despite the fact that they may be some kind of sponge sucking out of the others and building on their shoulders and despite the fact that most of their success comes from research done by others that may be motivated by patents and would not exist without patents.

I am not saying it necessarily was like that in reality. I am just saying it could be. Therefore it is not necessarily true that pharma patents are harmful.

Re: Pharma without patents

and as far as copying each other, countries hardly copy each others R&D. Most of the R&D is in different languages so doctors from one language can't read R&D in another country and most governmental bodies (like various FDAs) are not fond of R&D from other countries and mostly ignore it. Doctors and researchers are mostly unfamiliar with R&D in other countries, one huge criticism of global medicine is the huge lack of communication among doctors and researchers from various countries (partly because they speak different languages and for many other reasons).

Many pharmaceutical innovations occurred without patents and pharma industry used to be innovative back before patents weren't as prominent as they are now (ie: the founding fathers used to be very skeptical of patents). Right now the pharma industry is perhaps one of the least innovative industries in existence and part of the reason for that is patents.

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To be honest - like founding fathers I am also very skeptical of patents. I just wanted to use valid arguments and I don't think the 'Italy argument' is a very good one - I just posted my explanation here a little higher in the thread.

It's all about market positioning

The company in question is an interesting case, and its very origins tell a a lot about that business. Many years ago, our pharmaceutical client Warner Lambert was acquired by Pfizer, and simultaneously, their Warner Chilcott division was spun off as a freestanding corporation. But Chilcott was first created in the 80's when execs at Parke Davis, Warner Lambert's powerful pharmaceutical arm, noticed that their butts were being routinely kicked by generics... a relatively new trend at the time. Their response was to resurrect an old name from the Warner Lambert portfolio -- Chilcott was a small company they once acquired but had since shelved -- and to create their own generics arm. In effect, they'd be able to go head-to-head with the nimble generics on their own turf, and further wage war on their traditional Big Pharma competitors. Even their own compounds could be sold as generics, especially if it re-routed sales away from other generic companies and back into their own coffers. Not as profitable as selling the identical drug under their own high-priced brand, but at least they prevented the other guy from making a buck.
The usual claim is that generics aren't necessarily bioequivalent to their branded counterparts didn't seem to dampen their enthusiasm, although they could well have been pulling branded product off the line and re-labeling as generic. And one can only wonder how difficult it might have been for Warner Chillcott to acquire licenses to manufacture generics from their own parent. Hmmm.

Although I'm sure it's been lost to the sands (or bits) of time, a NYT article cited a pharma VP who admitted that the price of a drug was determined by its need. If you need it to survive it's going to cost more.
Regarding marketing vs R&D expenditures, this from a Science Daily article, just one of many
The researchers’ estimate is based on the systematic collection of data directly from the industry and doctors during 2004, which shows the U.S. pharmaceutical industry spent 24.4% of the sales dollar on promotion, versus 13.4% for research and development, as a percentage of US domestic sales of US$235.4 billion.

Prices depend on where you live. You live in a poor area then prices are historically higher with less selection. Wealthier area and more selection thus more competition. Who wants to compete in a slum? I bet the cost of the Generic varies from place to place also. Go to a Walmart and the prices and selection change from store to store. Simple economics. Why do they charge a lot for the brand? Because they can. I mean look at all the idiots buying Apple products. Duh.

WalMart Pricing

WalMart prices many popular drugs at a flat $10/month supply, which may sound like a great deal until you visit your locally-owned pharmacy. Many times the drug will cost you less than $10; at least my generic hypertension and cholesterol drugs do. [generic swipe at Apple ignored]

Most over the counter drugs are usually racemic mixtures, meaning it contains both versions of the molecule. Some drugs work better when these mixtures are purified, hence separating the left-handed molecules from the right-handed molecules. Those are usually highly effective and much better curing ailments than the racemic mixtures, hence why they are worth so much.

Considering the dearth of new drugs coming to market, patent protection isn't really a very big deal in the pharmaceutical world today. You have to actually invent something (or at least steal it) to get a patent on it.

Trivia question, what is the last time J&J (one of the largest drug companies in the world) brought a drug to market by themselves? It was the same year that the Dow closed above 4,000. LOL, Yahoo became Inc. the same year.

Funny thing is that whenever J&J buys a company for its product, it stops being able to come up with anything too.

Course, you gotta love a company that has that kind of cash flow with no ability to come up with products. They do make good Band Aids.

Medication Brand Prices

This is an absolute sin. While the money hungry mongers give the generics to people who are either poor or with no insurance, which could be crap meds, they are pocketing money to give to the rich. There is a difference in generics, I have worked with doctors in the past that admitted it. Sometimes they do not work. This is an awful injust way. In the past around 1960 or 1970 you could afford the original meds most of the time. This is nothing but greed. Compassion has flown out the window. If there was something to be done about this I wish somebody had the balls to do it.